The golden Dome of the Rock (C) in Jerusalem's old city is seen in the distance beyond a section of the controversial Israeli barrier in the West Bank city of Abu Dis, October 29 , 2014. (Reuters/Finbarr O'Reilly) / Reuters

Israel could soon find itself in trouble and face the wrath of Brussels: any further attempts to pose obstacles to a two-state solution with occupied Palestine could result in sanctions, Haaretz revealed, citing a 'confidential' EU document.

The classified paper was originally intended for internal
circulation among the 28 member states, but word of its existence
reached Israel after some of its diplomats in the EU leaked the
fact to the Foreign Ministry back home.

Although the Israelis could not secure the full text of the
document, some important details have come out, thanks to three
EU diplomats and two senior Israeli officials.

Speaking to Haaretz on condition of anonymity, they say
the paper outlines a “sticks and carrots” approach
(consisting mainly of ‘sticks’) to take effect in the event of
the Jewish state’s further attempts to derail efforts at
Palestinian autonomy.

According to a European source close to the discussion, Israel’s
unabated settlement building in disputed areas is of primary
concern here:

“The peace process is in deep freeze, but the situation on
the ground is not. There is big frustration in Europe and zero
tolerance for settlement activity. This paper is part of the
internal brainstorming being done in Brussels these days, about
what can be done to keep the two-state solution alive,” the
diplomat said.

In April, Israel went ahead and destroyed several EU-funded
humanitarian projects in a West Bank settlement zone known as the
E1 corridor, despite threats from Brussels and warnings that this
was seriously disturbing territorial coherence with the
Palestinians, let alone that it was a breach of international
law. Netanyahu’s government has targeted areas inside the
corridor since 2012. The three destroyed projects joined scores
of other EU-funded structures that Israel has dismantled.

Back in April, Europe warned that E1 was a “red line”.
Now, sources familiar with the leaked EU document say any further
construction there would constitute crossing it.

The same goes for the construction of the Givat Hamatos
neighborhood and further settlement building in Har Homa in
southeastern Jerusalem. Both are located beyond the historic
Green Line running through the city. This could put a very
serious damper on a two-state solution, the EU believes, as it
would make it absolutely impossible for the city to be a capital
to both states.

Although the document is in its initial stages and has been
called “an uncooked dish” by one EU diplomat, it’s
already causing a headache in Tel Aviv. Not least because it was
framed by Christian Berger – the director of the European
External Action Service (EEAS) for the Middle East, the same
person who threatened the Jewish state with sanctions over its
continuing settlement building back in July 2013.

Two weeks ago, possibly in order to soften the potential impact,
Israel’s Foreign Minister Avigdor Lieberman met the EU’s new high
representative for foreign affairs, Federica Mogherini. Her
predecessor, Catherine Ashton, and Lieberman reportedly wanted to
make sure that any actions taken by Berger would fall in line
with the current policies, and not those of Ashton’s.

The leaked document is not the first of such kind inadvertently
made public: last month another less threatening paper proposed
dialogue between Israel and the EU on the subject of the ‘red
line’ running through E1 in Jerusalem. This put Israel on alert,
and according to its top foreign officials, the existence of the
new document is proof that the EU “had already started planning
for [the talks] to fail and to impose sanctions.”

Current policy from Brussels stipulates that any upgrading of
ties with Israel hinges on its positive efforts at reaching a
two-state solution. But this could change if Israel goes the
other way, in which case the EU will start to restrict ties and
impose sanctions, the document reportedly reads.